Financial Management: DOD Improvement Plan Needs Strategic Focus
GAO-01-764
Published: Aug 15, 2001. Publicly Released: Aug 15, 2001.
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Highlights
Defense operations involve about $1 trillion in assets, $310 billion in annual budgetary authority, $24 billion in monthly disbursements, and three million military and civilian employees. Moreover, execution of DOD's operations spans a wide range of defense organizations, including the military services and their respective major commands and numerous defense agencies. Effectively managing DOD's finance and accounting operations across this complex array of organizations is both a formidable challenge and a prerequisite for effective and efficient departmental performance and accountability. Without reliable financial management information, DOD cannot make informed decisions among competing spending priorities and cannot effectively identify opportunities for reducing costs and reallocating resources to pressing needs. Because of congressional concern with DOD's financial management difficulties, Section 1008 of the National Defense Authorization Act for Fiscal Year 1998 directed the Secretary of Defense to submit to Congress a biennial strategic plan for the improvement of financial management. The National Defense Authorization Act for Fiscal Year 2000 established additional reporting requirements that were to be addressed in DOD's Financial Management Improvement Plan. This report reviews whether the plan (1) represents an effective tool for helping resolve DOD's longstanding financial management problems and (2) addresses the reporting requirements stipulated in the National Defense Authorization Act for Fiscal Year 2000. GAO found that the fiscal year 2000 Financial Management Improvement Plan represents a significant effort and an improvement over prior plans. The plan highlights the financial management challenges facing DOD and identifies actions underway or planned to address the acknowledged weaknesses. However, the plan is not an effective management tool that establishes a departmentwide strategic approach that can be used to guide and direct DOD's financial management reform efforts. In addition to not being an effective management tool, the plan does not fully comply with legislative requirements in the National Defense Authorization Act for Fiscal Year 2000.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of Defense, should direct the Senior Financial Management Oversight Council to oversee and monitor enhancements to DOD's Financial Management Improvement Plan to ensure that it is an effective departmentwide financial management strategic plan. At a minimum, future plans should assign specific responsibility and accountability. |
Closed – Implemented
Since the issuance of GAO's report, the department has embarked on an extensive effort to transform its financial management operations. In a July 3, 2002, letter, the Under Secretary of Defense (Comptroller) noted that the department's current efforts go beyond merely reevaluating the plan and its implementation. The Comptroller points to the Secretary's Financial Management Modernization Program as the means by which DOD will enhance its financial management operations. In this regard, in a July 19, 2001, memorandum, the Secretary stated that the Under Secretary of Defense (Comptroller), in coordination with the Under Secretary of Defense (Acquisition, Technology, and Logistics) and the Chief Information Officer, shall provide policy direction and oversight of DOD's Financial Management Modernization Program efforts. Subsequently, in an October 12, 2001, memorandum, the Under Secretary of Defense (Comptroller) established the Financial Management Modernization Executive Committee. The Executive Committee is to serve as an advisory body to the Under Secretary of Defense (Comptroller) for the financial management modernization of DOD. The Under Secretary of Defense (Comptroller) serves as the chair of the Executive Committee. The other members of the Executive Committee include the Under Secretary of Defense (Acquisition, Technology, and Logistics), Under Secretary of Defense (Personnel and Readiness), the Under Secretaries of the Army, Navy, and Air Force, and the DOD Chief Information Officer. These actions address the intent of GAO's recommendation to assign specific high-level responsibility and accountability for the department's financial reform effort.
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| Department of Defense | The Secretary of Defense, should direct the Senior Financial Management Oversight Council to oversee and monitor enhancements to DOD's Financial Management Improvement Plan to ensure that it is an effective departmentwide financial management strategic plan. At a minimum, future plans should establish realistic milestones. |
Closed – Implemented
In a July 3, 2002, letter, the Under Secretary of Defense (Comptroller) noted that the department has gone beyond reevaluating the Financial Management Improvement Plan. DOD is in the process of transforming its financial management operations. The Comptroller points to the Secretary's Financial Management Modernization Program as the means by which DOD will enhance its financial management operations. The Comptroller's letter further noted that the Secretary established a Program Management Officer to direct the modernization program. The Program Management Office is responsible for developing a department-wide financial management enterprise architecture that prescribes how the department has envisioned further enterprise architecture. The Comptroller further noted that the enterprise architecture is the centerpiece of DOD's strategy to improve its financial management operations. The department's efforts are consistent with the intent of GAO's recommendation.
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| Department of Defense | The Secretary of Defense, should direct the Senior Financial Management Oversight Council to oversee and monitor enhancements to DOD's Financial Management Improvement Plan to ensure that it is an effective departmentwide financial management strategic plan. At a minimum, future plans should develop measurable performance goals. |
Closed – Implemented
The fiscal year 2005 defense authorization act directed DOD to put into place a management structure that is responsible for the control and accountability over business system investments, by establishing a hierarchy of investment review boards. Further, the boards were directed to use a standard set of investment review and decision-making criteria to ensure compliance and consistency with the department's business enterprise architecture. In response to the act, the department established the Defense Business Systems Management Committee--which serves as the highest ranking governing body for business system modernization activities. Furthermore, the department has issued guidance in April 2005 and July 2006, that is aimed at helping to ensure consistency across the department in the performing system reviews. Further, the fiscal year 2006 defense authorization act directed that the department develop a comprehensive and integrated financial management improvement plan referred to as the Financial Improvement and Readiness Plan (FIAR). FIAR, issued in June 2006, and updated in September 2006, outlines specific milestones for resolving the longstanding financial management weakness for areas such as military equipment, real property, environmental liabilities, and etc. Besides identifying specific milestones, the plan also identifies the specific actions that must be taken by each DOD entity involved in the corrective action. The department's efforts are in keeping with the intent of our recommendation.
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| Department of Defense | The Secretary of Defense, should direct the Senior Financial Management Oversight Council to oversee and monitor enhancements to DOD's Financial Management Improvement Plan to ensure that it is an effective departmentwide financial management strategic plan. At a minimum, future plans should monitor and assess progress in resolving financial management deficiencies. |
Closed – Implemented
GAO has issued numerous reports on DOD's inability to produce accurate, timely, and reliable information for use in the decision-making process by DOD management and Congress. GAO first designated DOD financial management as a high-risk area in 1995; it remains so today. To assist DOD in its efforts to resolve its long-standing financial management weaknesses, the department issued its Financial Improvement and Readiness (FIAR) Plan in December 2005. According to DOD personnel, the FIAR Plan ties improvement activities at the component and department levels together with accountable personnel, milestones, and resources. More importantly, the FIAR Plan provides DOD components with a roadmap for achieving the following objectives: (1) resolving problems affecting the accuracy, reliability, and timeliness of financial information and (2) obtaining a clean financial audit opinion. DOD action accomplishes the intent of our recommendation.
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| Department of Defense | The Secretary of Defense, should direct the Senior Financial Management Oversight Council to oversee and monitor enhancements to DOD's Financial Management Improvement Plan to ensure that it is an effective departmentwide financial management strategic plan. At a minimum, future plans should establish a viable framework for building, maintaining, and marshaling DOD's financial management human capital needs. |
Closed – Implemented
In a July 3, 2002, letter, the Under Secretary of Defense (Comptroller) noted that the department has gone beyond reevaluating the Financial Management Improvement Plan. DOD is in the process of transforming its financial management operations. The Comptroller points to the Secretary's Financial Management Modernization Program as the means by which DOD will enhance its financial management operations. The Comptroller's letter further noted that the Secretary established a Program Management Officer to direct the modernization program. The Program Management Office is responsible for developing a department-wide financial management enterprise architecture that prescribes how the department's financial and nonfinancial feeder and associated business processes will interact in the department's envisioned further enterprise architecture. The Comptroller further noted that the enterprise architecture is the centerpiece of DOD's strategy to improve its financial management operations. The department's efforts are consistent with the intent of GAO's recommendation.
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| Department of Defense | The Secretary of Defense, should direct the Senior Financial Management Oversight Council to oversee and monitor enhancements to DOD's Financial Management Improvement Plan to ensure that it is an effective departmentwide financial management strategic plan. At a minimum, future plans should develop a complete inventory of all existing DOD accounting, finance, and feeder systems, and interrelationships among the systems. |
Closed – Implemented
In commenting on GAO's report, DOD stated that it is taking a fresh look at its Financial Management Improvement Plan and reevaluating how the plan should be strengthened and administered. DOD has begun developing an inventory of all existing DOD business systems. Specifically, in May 2004, GAO reported that the Business Management and Systems Integration (BMSI) office was creating a repository of the department's existing business systems. DOD reported that as of April 2003, the environment consisted of 2,274 systems and system acquisition projects. Furthermore, in July 2004, the Acting Under Secretary of Defense (Comptroller) stated that DOD has identified over 4,000 systems, and began to build a blueprint that includes integrating the environment of systems and process.
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Federal agency accounting systemsFinancial managementReporting requirementsStrategic planningHuman resources managementFinancial management systemsInternal controlsContract performanceEnterprise architectureU.S. Army